No matter your industry, automation has become the buzzword of the moment. And, that’s especially true when it comes to processing your tax returns. However, as we’ll discuss shortly, the advantages of using a CPA to file your taxes still crush relying on automation every time. Here’s what the kings of tax automation aren’t telling you.
The Deceptive Nature of “Bargain” Tax Filing
Plug and chug tax preparation programs like TurboTax have been on the rise since the IRS introduced e-filing in the 1990s. The surface-level convenience of inputting a few lines of data into an automated system and filing the returned results online appeals to many consumers. But, adopting a do-it-yourself approach to filing your taxes comes with some apparent risks and concealed costs.
Or, as the saying goes, “all that glitters isn’t gold.”
Programs like H&R Block boast deluxe online self-prep services for as little as $49.99 per state tax return filed. If you’re a new grad with relatively few assets to your name, this price might actually confer savings.
But, life is often messy, and a one-size-fits-all approach to tax preparation usually fails to capture the uniqueness of most tax situations.
Consider some of the following—extremely common—situations in which it’s best to enlist the guidance of a trusted tax expert:
- You’re self-employed, whether as the owner of a small business or as a subcontractor.
- You’ve experienced a significant life event or sticky situation. These events include marriages, divorces, births, deaths, mergers, moves, buying or selling a home, retirement, etc.
- You receive income from rental properties, foreign investments, cryptocurrency, stock trading, etc., or a bevy of less common income sources.
Is your head spinning yet?
Automated tax prep programs deliver precisely what they sell: tax preparation. But, unfortunately, when it comes to tax planning for the future, you’ll find yourself locked out in the cold.
In contrast, a CPA helps you identify tax savings and investment opportunities that will compound your capital across the span of many years. Simply put, this obvious advantage can translate into tens of thousands of dollars in lifetime savings. It can make the competition look pretty shabby in comparison.
Tax Planning, Planning, Planning…
Effective tax planning begins in the off-season.
You might be familiar with the obnoxious phrase, “Summer bodies are made in the winter.”
Similarly, effective tax planning for spring filing begins in the summer of the previous year. So if you genuinely wish to maximize your annual savings for next year, you need to consult with a CPA now.
Want to ensure that your hard-earned savings remain in your bank account instead of the government’s vaults? A skilled CPA will equip you with the investment strategies you need to outfox the IRS while staying on the up and up. From HSAs and FSAs to IRAs, your accountant knows the right combination of alphabet soup to craft a winning tax strategy that saves you money for years to come.
As your tax situation becomes more complex as the years tick by, you’ll learn that tiny financial decisions made in your youth carry BIG consequences. For example, sound financial decisions tend to dilate your long-term savings, whereas a lack of strategy can contribute to stagnant growth.
Here’s the bottom line: Automated tax prep programs help you evaluate situations that have already occurred. But, unfortunately, they’re inherently myopic as they focus only on the current tax year. As a result, they don’t provide you with recommendations for the future, and they can’t help you identify missed opportunities for savings.
Because these mistakes don’t often have immediate consequences, it will be years before you realize your error. But, in the meantime, that blunder translates to losing out on numerous avenues to save for your financial future. Simply put, unless you’re already a tax expert, these programs are a dead end.
You Deserve the Best of Both Worlds
Although we’ve been denouncing the pitfalls of online tax preparation, we’ll let you in on a little secret: Not all automation is bad.
In fact, most CPAs use automated tax preparation software to assist in calculating your returns. But, there are some notable differences here of which you should be made aware.
Firstly, your accountant’s tax preparation software is significantly more sophisticated than TurboTax. For example, your accountant pays somewhere between $1,000 and $6,000 per year to access these programs. Compared to the $50-$100 per year you pay to file via TurboTax or H&R block, the difference in expected outcomes is now becoming even more apparent.
Secondly, your CPA knows how to work an automated system to your advantage. Remember, the secret sauce of financial success lies in planning.
For example, did you start a small business last year or purchase an energy-efficient home? Did you acquire any foreign assets or find yourself the recipient of an unexpected inheritance? If so, then TurboTax can only provide you with a rudimentary snapshot of your financial situation.
Consider the following example:
2021 proves to be a particularly challenging year. By the end of the year, you suspect that you’ve spent more than 9% of your annual income on medical bills. TurboTax informs you that you should consider itemizing your medical expenses, which become deductible once your yearly healthcare costs exceed 7.5% of your annual income. TurboTax then rattles off a list of “stock” deductions—obvious items that you can deduct like doctor’s bills and surgeries.
But, after crunching the numbers, you’re coming up short. Without a CPA to guide your itemization, you overlook several qualifying expenses, including transportation costs related to accessing your appointments, fees to participate in a physician-prescribed weight-loss program, and periodic charges for your monthly acupuncture treatments.
Your tax automation program of choice didn’t alert you to these eligible deductions. So instead, you end up taking the standard deduction and miss out on subtracting $3,500 from your annual income. As a result, you pay taxes on this amount, significantly reducing your tax refund and compounding your financial burden.
You thought you were saving money by relying on automation, but instead, you’ve already lost out on more money than you intended to save.
This example illustrates why banking on automation to generate error-free tax returns can be so deceptive. A tax machine is only as skilled as its operator. Unless you’re a tax expert with years of specialized training under your belt, slipups are easy to make.
Although your mistake won’t lead to an audit, you will end up shelling out more money to Uncle Sam than you owe. And, you can believe that the IRS surely won’t alert you to your error.
CPAs Deliver Financial Know-How With a Human Touch
Becoming a CPA in New Jersey isn’t easy. First, you must obtain your bachelor’s degree (plus an additional 30 semester hours) from an accredited institution. Moreover, 24 of these 150 semester hours must include accounting credits. Additionally, to round out your financial education, you must devote another 24 semester hours to earning business credits.
As if that’s not daunting enough, you’ll also need to pass a 16-hour exam and complete 1,750 hours of supervised work under a licensed CPA.
Needless to say, you can’t blunder your way through these qualifications. A highly advanced level of financial aptitude and stick-to-itiveness is a prerequisite.
But, the advantages of using a CPA to file your taxes include more than just technical skills and business acumen.
A good CPA also provides a human touch. Unless you need technical support to access your account, the support team behind an automated tax preparation service typically can’t answer your question. Sure, they can reset your password and help you regain access to last year’s tax return. But, what about the things that matter? For example, if you’re going through a recent divorce, who will field your tax questions regarding the division of your financial assets? And, who will be available in the off-season and have the chops to advise you about acquiring rental properties?
When your circumstances change, you need prompt answers to your burning questions. CPAs are available year-round to answer your questions and guide your financial decisions. Whether you’re setting up a college fund or moving across state lines, CPAs deliver the superior customer service that you’ll come to rely on for all your financial needs.
The Tax Preparation & Planning Advantage You Deserve
At Steven Lissner & Co., our accountants deliver customized tax planning and preparation solutions for individuals, couples, and small businesses. With over 30 years of industry-leading experience, our CPAs know how to harness the power of tax automation without losing their human touch.
We excel where big-name automated services fall short because we believe a solid financial blueprint involves careful planning. Whereas programs like TurboTax provide only a snapshot of the last tax year, we help you craft a winning financial strategy that will ensure your fiscal success for years to come.
To experience the Steven Lissner difference, contact our team of tax preparation advocates today! Your biggest tax refund yet awaits you!